Visa roughly met its foreign exchange neutral (FXN) double digit revenue growth guidance & slightly missed revenue estimates. Its 13.2% 3-year revenue compounded annual growth rate (CAGR) compares to 15.3% last quarter and 14.9% 2 quarters ago.

Visa expects low double-digit adjusted net revenue growth, which roughly met 11.5% Y/Y revenue growth estimates. It also expects adjusted EPS growth in the “high end of the low double-digit range,” which roughly met 12% Y/Y EPS growth estimates. It also sees payments volume and processed transaction growth stability, with cross-border volume growth slowing a bit Q/Q. Visa continues to see the same revenue result that it did at the beginning of the year. This is despite lower currency volatility (which hurts its business) and macro weakness across mainly Asia.

Quarter-to-date, U.S. volume is up 4% Y/Y overall (4% for debit; 3% for credit). The deceleration from Q3 “does not appear to be from any 1 factor, but many including weather, timing of promotions, the CrowdStrike outage and other things.” If only they could just say what “other things” means. My best guess is macro.

Visa trades for 25x this year’s earnings. Earnings are expected to grow by 13% Y/Y this year and 12% Y/Y next year. Here’s how its earnings multiple compares to historical norms:

“Our payments, cross-border and processed transaction key business drivers were relatively stable.”

CEO Ryan McInerney

“U.S. payment volume growth was generally in line with last quarter when adjusting for leap year… Moving to international markets, total payments volume was relatively stable with Q2 when adjusted for leap year.”

CFO Vasant M Prabhu

Results from its new annual global client engagement survey were encouraging. Its net promoter score (NPS) rose 3 points Y/Y to 76. I always say NPS should be taken with a grain of salt, as it’s subjectively calculated and internally derived. Still, as long as methodology isn’t changing Y/Y, it’s good to see that metric moving higher.

For this year’s Olympics, it has been pushing very hard to distribute its visa-branded cards. It now has 6 million of those cards in circulation vs. 5 million Q/Q. It also has added 100,000 new merchants as Visa customers in France for the events. 

Visa’s click-to-pay and Visa Payment Passkeys, which allow users to login with biometrics, are now testing with European merchants representing 50% of its e-commerce volume there. It’s hard at work on adding tap-to-pay, tap-to-authenticate, tap-to-add-a-card and tap-to-send-money functionality for all of its customers. Tap-to-pay rose 8 points to 84% of total face-to-face transactions ex-USA this year (over 50% in the USA now). This is highly important for Visa and rightfully a priority.

New Flows revenue rose 18% Y/Y FXN as Visa Direct transactions rose 41% Y/Y (boosted by debuts and traction in Latin America) and commercial payments volume rose 7% Y/Y FXN. On the commercial end, it added new B2B relationships with Cintas and new data partnerships with Celero in Brazil. Wells Fargo is also now using its expense management program in a white-labeled capacity for 6,000 of its enterprise clients.

For Visa Direct, it launched new partnerships with several notable clients across Europe and also ZheShang Bank in China for cross-border service. Nuvei also extended its Visa partnership to add cross-border P2P payments in 30 countries. Visa+ is a piece of software allowing P2P payments using unique identifiers, which it calls “paynames.” This is now live on PayPal and Venmo.

Card benefits performance was strong, with travel, entertainment and food all standouts. The Visa Infinite Fast Past in Brazil (basically TSA pre-check) crossed 1 million travelers during the quarter. It also added a new relationship with OpenTable, deepening the available benefits for its cards and co-branded arrangements.

For its acceptance solutions, utilization of its tokenization and e-commerce services went well. iFood (largest delivery service in Brazil) is now using Visa Verifi for dispute and chargeback prevention. Worldpay in North America is now using Visa to cut payment fraud rates too. The card giant’s “account-to-account risk scoring” solution called Visa Protect is showing a 40% fraud detection improvement 3 months into beta testing.

Asia Pacific continues to be the weak spot. Inbound APAC travel  did improve a bit, but outbound travel improved at a slower pace. It attributed this to “macroeconomic pressures.” In the USA, spend from its more affluent customers is stable and resilient. Spend for its lower income cohorts has shown signs of slowing.

Visa is a fantastic company with one of the deepest moats on the planet. You can explicitly see that in their crazy 60%+ GAAP operating margin at this scale. As Bezos famously says, “your margin is my opportunity.” Visa has built a fortress around its business, making pursuit of market share unattractive for new entrants. Mastercard is in the exact same spot. More wonderfully boring and rock-solid execution. For the overall economy, this echoes what we’ve heard from large banks. The economy is fine, but slowing. Affluent consumers are faring better than less affluent consumers. 

Amazon is reportedly testing its own chips to reduce its need for Nvidia GPUs. Shared customers are yearning for alternatives that aren’t so crazy expensive and Amazon thinks it can provide them. This follows Tesla’s Elon Musk commenting on feeling a need to match Nvidia’s GPU prowess for itself to try to avoid paying ridiculous prices for Nvidia’s GPUs. The world is trying to piece together hardware to sort of, kind of emulate the utility and efficiency of Nvidia’s Hopper and Blackwell platforms.

This highlights how much pricing power Nvidia still has, and how flexing that pricing power is pushing ecosystem participants to find other solutions. But? Nvidia’s absurd pricing power relies on a large tech lead. They’re racing as fast as they can to continue iterating and finding performance gains to ensure they stay ahead. It’s a daunting task for competitors to keep up. AMD hasn’t been able to do it. We’ll see if mega-cap tech can. Amazon, Google, Tesla and Microsoft all continue to try to replace part of their Nvidia reliance while also readily partnering with them and buying billions in GPUs from them. Interesting dynamic.

PayPal is rolling out Fastlane as we speak. It hosted an event this past week where it reiterated and talked up stats like an 80% guest checkout conversion rate. That is excellent and compares to industry averages around 50%. There are always real risks associated with traction for any new product. And while Fastlane’s success is uncertain, I think there’s a good chance that it could be highly impactful for the company overall.

Checkout is a commodity. PayPal stands out with brand trust and merchant adoption. It’s trying to catch up to others like Shopify in terms of friction.  There are no massive 30%+ conversion advantages to be had in checkout. Just stealing a few incremental basis points of conversion is considered a large win for merchants… and rightfully so. A few basis points can have a real impact on overall financials. Imagine what 3,000 basis points can do. This is how PayPal can stand out once more and why an unknown airline executive called it the “most exciting uplift to conversion” they’ve ever seen. Maybe a bit dramatic, but you get the point. It’s how it can mine its massive consumer scale to recognize any guest that has been on a PayPal merchant site and deliver them a guest checkout that emulates the convenience of modern digital wallets. As someone who has already used it, the delight associated with side-stepping manual card entry is noticeable and PayPal’s post checkout advanced promotion tools added to that delight. It’s easy to see how this experience could turn Fastlaners into consistent digital wallet users too.

This is a massive book of business and Fastlane will inevitably need time to be a material contributor. Still, I do expect to hear just how excited leadership is about the potential impact. We all know the stock could use a game changing product release… and I think Fastlane could be that. We shall see.

Enphase exists in the wildly cyclical solar energy sector. As overall cost of capital rises, the price of its financed equipment rises too. The historically easy monetary policy in 2021 greatly helped it; the historic hiking cycle has greatly hurt it.

a. Results

Enphase trades for 45x expected 2024 earnings. Earnings are expected to fall by 41% Y/Y this year and rise by 89% Y/Y next year.

ServiceNow is one of the largest enterprise software firms in the world. It automates workflows, tech stacks and projects to augment customer efficiency. For this reason, it calls itself the “leading digital workflow company.” Workflow automation buckets include: service management, operations, asset management, security, customer management, employee management and creator management. These are further grouped into workflow buckets like “customer & employee workflows,” “creative workflows” and “technology workflows. Two products to know within the tech workflow category include Information Technology Operations Management (ITOM) and Information Technology Service Management (ITSM). The names of these products tell you exactly which types of workflows they’re meant to automate.

All products and services are neatly tied into its “Now Platform.” The firm describes this overarching platform as a way to “optimize processes, connect silos and accelerate innovation on a single unifying platform.” That’s a fancy way of saying that it makes every piece of work more efficient and expedient.

To bolster automation capabilities, ServiceNow has been hard at work on GenAI innovation. Its Vancouver Platform release got the ball rolling by consolidating all model and app work into an intuitive set of products. It recently built on that debut with a “Washington D.C. Platform” release. This is essentially a large batch of GenAI-inspired upgrades to the Now platform. It builds on the progress of the previous Vancouver platform release. It more seamlessly ties together NOW’s product categories to drive better interdepartmental work and communication. It offers the “workflow studio” as a unified workspace to manage productivity across teams. It allows for seamless database refreshes without complex coding; it goes deeper in terms of intelligently automating customer service and order management workflows.

These platforms are a foundation for its GenAI apps. A key example of these apps is “Now Assist AI.”  This is ServiceNow’s GenAI assistant/companion being infused across most of its products. “Plus SKUs” are how ServiceNow bundles all of its GenAI work into subscription packages. It upcharges clients for access to these SKUs as its approach to GenAI monetization has been more aggressive than most others. These Plus SKUs do things like automate customer service, expedite issue resolution, guide workflows and provide more conversational fetching/querying of a firm’s data.

“Our robust pipeline, combined with our outperformance in the first half, gives us the visibility to raise our 2024 subscription revenue guidance and reinforce our confidence in achieving $15+ billion in 2026." – CFO Gina Mastantuono

ServiceNow trades for about 58x 2024 earnings estimates. Earnings are expected to grow by 28% Y/Y this year and by 20% Y/Y next year. Here’s how its earnings multiple compares to historical norms:

For the last several ServiceNow quarters, we’ve written about how their workflow platform has an uncanny ability to consolidate point solutions (single product vendors), drive better results at lower cost. It’s how NOW has cut through macroeconomic noise as customers seek to do “more with less.” ServiceNow’s approach gives them just that. It frees customers to continue spending on this platform because doing so improves overall operating efficiency and profitability. That’s how it continues to win, and this quarter was no different.

“I get questions about the second half, with speculation that elections or macro will challenge the business environment. Are our customers mindful of the unknowns and the broader macro? Of course. That's exactly why they are leaning into ServiceNow. Because our products are the elixir that drive productivity, cost efficiency and new business models.”

CEO Bill McDermott

$1 million average contract value (ACV) deals rose 26% Y/Y as it added 53 during the quarter vs. just 38 in the Y/Y period. It also added 6 new logos with over $1 million in deal value vs. just 1 client during the Y/Y period. Its first public sector customer ever crossed the $100 million ACV mark and it added its largest net new contract ever during the quarter too. What’s driving this? The platform is a cross-selling machine. Security and Risk was in 8 $1 million deals, ITSM was in 9, ITOM was in 10, Customer Workflows was in 14, Employee Workflows was in 12 and Creator Workflows was in 10. Its AI workflow business, which is very new, is already being included in half of its 20 largest deals during the period. This explicitly shows you the obvious trend of ServiceNow successfully expanding beyond its more legacy technology workflow niche. Customer win highlights included:

Customers aren’t just landing and expanding, but they’re also sticking around. Gross revenue retention stayed at a very lofty 98% during the quarter vs. 98% Q/Q and 99% Y/Y.

3rd party accolades to depict NOW’s product quality during the quarter were as follows:

GenAI is a key ingredient in driving larger deal sizes, new customer wins and macro resilience for ServiceNow. It is one of the few enterprise software companies already meaningfully monetizing apps and building a sizable deal pipeline. There had been mounting negative sentiment towards this company from sell-side analysts who didn’t believe this firm could monetize its work in GenAI. They were wrong and ServiceNow proved it this quarter. Great news for the company… great news for high-quality enterprise software names. This section will dig into some of its GenAI products, as well as those products’ momentum and utility.

Generally speaking, Q2 was a “fantastic quarter” for GenAI contributions that “exceeded expectations.” Net new ACV (NNACV) for its Now Assist AI tool rose 100% Q/Q to maintain its status as the firm’s fastest growing new product ever. It has already been included as a centerpiece of 2 $5 million deals. 

The company hosted an event in May, which highlighted how it’s making AI work for people and companies. That event generated $1 billion in GenAI-related deal pipeline for NOW to pursue and yielded 50% growth in its overall pipeline just 60 days after the event. That’s impressive. Why are customers embracing ServiceNow’s GenAI software suite? It’s because NOW’s approach is creating real value, which, in turn, creates a sense of urgency for customers to adopt. The software giant intuitively fixates on creating “desirability” by training models to handle tedious, repetitive, monotonous work for employees, creators and companies. It doesn’t replace the human touch, it frees that human touch to focus on something more impactful. It then ensures “viability” by training smaller, more relevant, domain-specific models for clients in various sectors. This fosters lower hallucination (or wrong answer) rates, cheaper/easier training and more relevant queries.

That sounds good… but doesn’t GenAI need to actually drive positive financial outcomes to build traction and deliver value? Yes, yes it does… and ServiceNow is starting to show signs of pulling that off. Its own IT help desk saves 45 minutes every time GenAI handles a ticket. Its customers are saving hours upon hours of time by automating pieces of customer service as well. Honda is using Now Assist to improve internal operating efficiencies; Merck is using it to accelerate drug discovery; Adobe is using it to improve employee work prioritization; LTIMindtree is using Now Assist for ITSM to improve developer productivity by 30%; BT Group is using Now Assist to write case studies 55% faster.

ServiceNow has not yet implemented the needed channel partnerships (global system integrators, public clouds, re-sellers etc.) to maximize traction here. The focus has been entirely on direct selling and that tailwind is in front of it.

The ideas above are all quite general. I think it helps to know some of the key GenAI products that are actually facilitating this early momentum. This section will be included in the ServiceNow 101 section going forward, as these products will ideally become quite impactful over time.

Its AI Lighthouse program started a few quarters ago to expedite GenAI adoption. It partnered with Nvidia and Accenture to build a joint platform for frictionless implementation. ServiceNow brings the apps; Nvidia brings the hardware; Accenture brings the professional services for optimal onboarding. It’s now launching the RaptorDB Lighthouse Program. RaptorDB is ServiceNow’s newer database “built for speed and enterprise scale to support AI use cases.” It offers massive data ingesting capabilities from a wide range of 1st and 3rd party sources to feed the aforementioned domain-specific models. RaptorDB is perhaps the most underrated part of NOW’s GenAI push. Models are worthless without access to more relevant data than the other 1,000s of competing models. This should remove training cost and scale bottlenecks for ServiceNow and its clients. With RaptorDB, ServiceNow is 27Xing the pace of “analytic inquiry response time.” ServiceNow will also acquire an information retrieval specialist called Raytion to combine with this new offering.

As an interesting aside, Snowflake is now trying to “bring a customer’s work to their data,” ServiceNow is trying to bring their data to their work. Just goes to show you how valuable vendor and product cohesion can be. Cost savings… outcome improvements… impactful.

ServiceNow received an internal complaint from an employee on hiring a former U.S government worker. It conducted an investigation and found it did violate its own policy. It let the person go and also fired its President and COO, CJ Desai in response. It is tightening controls to ensure this doesn’t happen again, but this candidly, this seems like a nothing burger.

This was a great quarter. The company silenced all doubters on GenAI monetization, continued to deliver strong margin  growth and kept fortifying itself as the de-facto workflow platform play. The leadership note is a bit odd, but with McDermott running the show, it’s not concerning in my view. There’s nothing else negative to pick at here. Only another rock-solid quarter to praise.

"The second quarter was outstanding, as successful brand marketing, including the return of Chicken Al Pastor, drove strong demand to our restaurants.”

CEO Brian Niccol

“New openings are strong across all markets.”

Outgoing CFO Jack Hartung

Chipotle reiterated all annual guidance including mid-to-high single-digit comparable restaurant sales growth, 300 new stores (8.7% Y/Y growth) and a 26% tax rate.

Chipotle trades for about 45-46x 2024 earnings estimates, depending on where those estimates shake out after the report. It’s expected to grow EPS by about 21% Y/Y this year and by 19.4% Y/Y next year. Here’s how its earnings multiple compares to historical norms:

Chipotle’s stock violently swung around during its earnings call. It seemed to respond most negatively to CFO Jack Hartung telling investors that traffic peaked in April and “normalized” back to 6% annualized growth in June. 6% is slower than what we’ve come to expect lately. In July, things have been “more difficult to read, but it believes underlying trends remain similar to June.” Hartung thinks this could be related to weather or holiday timing, but he isn’t entirely sure. Could this be some consumer weakness creeping into the business? Again, they’re not sure yet. For now, nothing overly alarming there, as Chipotle is faring better than most at 6% comp sales growth. Still, I get why a company that’s priced for perfection responded negatively to the commentary.

“Like last year, we’ve seen a seasonal move and change in summer behavior. And so obviously, we're trying to understand what that looks like because it appears to be new trends since coming out of COVID. So that's one piece of the puzzle. And then obviously, we’re trying to understand if there are any macro things going on.”

CEO Brian Niccol

I continue to be impressed with Chipotle’s sales per unit growth or average unit volume (AUV). North of $3 million is very, very good for a quick service concept like this. AUV is a key part of the growth engine, so how far can things go? There doesn’t seem to be any semblance of a near-term ceiling, with several tailwinds firmly intact:

Chipotle has been focused on bolstering throughput as part of its “run great stores” pillar. Several projects are at work here. It enhanced training to expedite meal prep. It also is re-allocating labor hours to boost throughput further. One example of the power of proper labor allocation is with cashiers. When it has a staff member in place specifically for bagging and payment processing, it services 5 additional entrees during its peak 15 minutes of operation. That’s likely close to $100 in added revenue during those 15 minutes, which already pays for roughly a full day of that employee’s wages. It only has this team member in place for that peak time in 50% of its stores, with plans to significantly boost that this year. But there’s more:

Its “Chopotlanes” (drive-thru windows) have consistently shown an ability to directly improve store volume.  Accordingly, 46 of its 52 new stores this quarter had Chipotlanes. The proportion of overall locations with this feature will continue to rise and that will continue to support volume gains.

Its dual-sided grill is delivering expected benefits in a ten store test. It cuts meat cooking time by 50%, is much easier to use for workers and is freeing up labor hours to focus on other tasks. This is further enhancing throughput and will be rolled-out to 74 more stores this year.

It’s also gamifying throughput by listing entrees per time period for employees to see and try to beat. That may sound quirky, but it has been a secret sauce for other firms like Duolingo, so maybe it can work here too. Nothing like keeping score to fire up the competitive juices.  Between all of these factors, I see no reason why volume gains can’t continue.

Food, beverage and packaging cost as a % of revenue was stable Y/Y, despite some benefits from price hikes. The lack of leverage was due to wage inflation (California minimum wage hike hurt them a bit) and avocado inflation. It’s also using more oil for frying chips and saw a mix shift to barbacoa following a successful marketing campaign (slightly lower margin protein). Still, restaurant level margin did expand Y/Y, as sales leverage was able to overcome these headwinds.

Niccol acknowledged the viral social media trend of filming chipotle workers as they prep food to ensure proper portions. Niccol told us that there has never been a directive to tell employees to serve less food. “Generous portions” are highly important to the Chipotle brand, he says. Still, it is implementing more employee training in the stores where customer service scores are lower to ensure proper sized portions. It’s beginning to see service scores at these locations tick higher.

As briefly mentioned, CFO Jack Hartung will retire after 25 years with the company. What a tenure & congratulations to him. Adam Rymer will be promoted from VP of Finance to CFO to replace him. Adam has been “directly and indirectly” mentored by Hartung for the last 15 years. This should be a smooth transition.

Chipotle’s general manager (GM) turnover is as low as Niccol has seen it since he took over. Chipotle is incredibly promoting 90%+ of its new GMs internally. Cava pounds its chest about being at a 50% internal promotion rate.

The Chicken al Pastor marketing campaign surpassed expectations, with the protein reaching a 20% incidence rate at its stores. It has been materially incremental to transactions and spend. This promotion is ending this summer, with its smoked brisket coming back this winter. I personally can’t wait. Its National Burrito Day campaign, which again included gamified promotions, netted the firm’s best sales and rewards program day in its history. It’s working with Anthony Edwards and a few other high profile athletes on a marketing campaign for that event.

Aside from July sales commentary, margin commentary wasn’t amazing. It “expects restaurant level margins to be under pressure for a couple quarters.” This is due to seasonality, but also investments in the business, larger portions at low customer service score locations, more marketing and the aforementioned labor inflation. Food inflation is hurting a bit, but it has been able to move away from Mexican avocado sourcing to avoid a lot of the impact there. Ex-avocados and wages, it thinks inflation for this year will be in the “low single digits.” It sees cost of revenue rising from 29.4% this quarter to 31% next quarter due to all of this and its restaurant level margin coming in at 25%.

This iconic company had another rock-solid quarter. Niccol is elite, the runway remains long, the brand, concept and food all deeply resonate and Chipotle keeps executing. This and Cava are two companies I would LOVE to own at lower multiples. The only thing I don’t like about Chipotle is how expensive its stock is today. Great quarter amid a more difficult backdrop. We’ll have to see if the July traffic uncertainty turns into anything more. 

Disney is having a fantastic summer at the box office. The Apes sequel handsomely beat performance estimates and Inside Out 2 is now the largest grossing animated theatrical release ever. This week, Deadpool and Wolverine’s opening is shattering more records for R-rated releases. They are killing it. It’s almost like refraining from trying to influence culture and instead just telling great stories works. What a concept... Who could have possibly thought it (all of us)? Iger has seemingly repaired the film pipeline’s content and margin prospects through significant cost-cutting, project cutting and these three pieces of news. That not only means profitable releases in theaters, but a compelling tool to drive traffic to its steaming platform. In the case of Inside Out 2, it will also surely enjoy significant consumer packaged goods revenue. Great news.

While the film division is rocking, Disney’s stock lately has not been. That’s partially due to Peltz supporters exiting the company after he lost the proxy fight; it’s partially related to rate cut uncertainty considering how frequently this firm utilizes debt; it’s also related to consumer discretionary struggling mightily as a sector.

Comcast this week called out park business weakness, which weighed on Disney. That’s something to focus on for its upcoming quarterly release. Still, Disney did a much better job than Comcast last quarter when it came to calling out this weakness and telling us it was part of the guide. I’m cautiously optimistic that they steered street estimates where they needed to go. We shall see. 

Another quarter… another poorly run educational tech firm dragging Duolingo stock down. In the past, it has been Chegg flopping while Duolingo thrives. This week, it was 2U calling out concerningly disappointing business trends. I candidly view this similarly to Snapchat’s struggles through 2023 while Meta and high-quality players in ad-tech thrived. I don’t think the sector is in the dumpster, I think the losers in that sector are showing their true colors. Duolingo, in my view, is far from one of those losers.

I do not think either are a reliable read through for what I view as a far superior company. Whether you look at engagement trends, marketing intensity, product expansion, balance sheet health, organic word-of-mouth growth or any financial metric you want to… Duolingo is in a class of its own in my shareholder opinion. It’s not really all that close either. Does that mean the company is going to blow the street away yet again. That’s possible, but that’s not what I’m saying. Chegg and 2U simply are not quality read-throughs to what to expect for this elite business. 

Bank of America upgraded Duolingo to a buy due to all of the fabulous growth prospects already highlighted.

CrowdStrike has restored 97% of the endpoints that were affected by its software release bug last week. That’s great to hear, but it doesn’t change that this firm’s recovery will likely not be overnight. There are large fines and customer credits inevitably coming as CEO George Kurtz gears up to speak to the US House Committee. CrowdStrike’s balance sheet can handle that and Kurtz can surely handle a fiery Q&A. The more uncertain headwind will be how heavily this impacts the firm in its bidding for new customers. You best believe Microsoft, SentinelOne, Palo Alto and others will be quite loud in reminding prospective clients about this highly public blunder. Another potential headwind was Microsoft trying to limit Falcon access to Windows. That doesn’t seem to be likely at this point. Great news there. That would have been potentially devastating.

I’m comfortable with owning the small stake that I currently own. This is still expensive and we still truly have no idea what the concrete impact will be. At the same time, I think my disinterest in owning more of this name will prove temporary. I do think the company will recover and that the road to recovery will be highly volatile. I will be seeking out reasons for confidence and will be using those to signal re-investment. Regardless of how putrid of a look this was for CrowdStrike, I still think there will be much brighter days ahead.

Last week, an email I sent out was flagged as “dangerous” by Gmail. That’s because I used the word “Google” too many times in the Google earnings review and the server thought I was trying to impersonate them. I have to keep usage of this firm’s name under 15 per article. While I think it’s amusing that I was marked as dangerous by the firm I was saying nice things about, I apologize for any delivery issues this caused. I’m really hoping things were back to normal today. In this article, I will refer to this firm as “Search King.”

OpenAI is rolling out SearchGPT to rival Search King. Search King responded negatively to this news and I wanted to comment on that. I don’t view this as alarming for Search King in the least. Why?

A few quarters ago, OpenAI and Bing teamed up for a GenAI search product that was supposedly going to take meaningful share. I candidly thought that would happen. Microsoft, with its balance sheet, team, product bundle and team, was investing aggressively to be a real player here. It seemed likely that they could steal a few points of market share. But… they didn’t. Bing has had zero discernible impact on Search King’s search results, which were the highlight of its last quarter. If Microsoft and OpenAI together can’t threaten this monster, why would OpenAI on its own be able to do so? I don’t think they will. Perplexity has a great GenAI search product… others have great competing products… and Google continues to march along in a way that still resembles a monopoly.

Mark Zuckerberg revealed this week that WhatsApp crossed 100 million monthly active users (MAUs). The company has been highlighting North America as one of the app’s fastest growing markets, and this continues that strong momentum. If you pay attention to Meta’s “other revenue” segment, you can see it exploding in size as of last quarter. That’s directly related to WhatsApp’s thriving click-to-message business that connects creators and merchants with their customers. 

I was asked this week how WhatsApp could ever be monetized in the states. The answer is exactly like they monetize it elsewhere. All that was missing in North America was gigantic consumer scale. Now with that scale being built, merchants and monetization opportunities will follow. Whether that’s subscriptions for GenAI customer service models, premium chat rooms, calling an Uber from your phone (like in India) etc. there are so many opportunities here. Just like all of its other apps, and to quote my favorite movie, “if you build it, they will come.” It is consumer scale here and they are lucrative merchants.

North America is also the most compelling geography on the planet in terms of monetization ceiling or willingness to spend per user. With WhatsApp adding this nation to its list of promising markets, it adds more revenue potential than it could anywhere else.

In other news, the new Llama 3.1 model with a 405 billion (405B parameter version was released. It calls this the first open-sourced frontier model, which is another way of saying it’s the first open source model to rival best-in-class closed-source models like GPT4. 3.1 405B opens up more data ingestion and generation capabilities and also model distillation. Partners for the new model include AWS, GCP, Azure, Groq, Nvidia and Snowflake. The updated 8B and 70B parameter models also are now multilingual and boast better long-text summarization and coding assistants. This blog post really gets into the weeds of how the model was built. I don’t think that’s necessary to know for investors, but knock yourself out if you’re interested.

Uber, Lyft and Doordash can keep classifying their drivers as contractors in California. This State Supreme Court ruling reverses a lower court ruling that tried to find this classification unconstitutional. This is great news for all three firms, as they’ve avoided incremental labor costs and the need to force workers to drive with strict hours (which most don’t want). 

Celsius volumes rose 22% with a 2.4% average price hike in the month of June, per Nielsen. This compares to 42% Y/Y growth for the overall quarter and 33% Y/Y growth for the previous period. This continues the unanimously expected trend of slowing growth as comps get tougher, Pepsi inventory resets wrap up and this company’s sector temporarily struggles. For context, Monster energy volumes fell 2.6% Y/Y over the same time Celsius delivered 22% Y/Y growth. 

Bank of America sees Draftkings missing EBITDA estimates this quarter due to customer acquisition cost trends and the Illinois progressive tax change. It thinks this is already baked into the stock and that attention will be on the full year guide. DKNG will also launch a sportsbook in Washington D.C. pending approval.

JP Morgan downgraded Nu to neutral and raised its price target from $12 to $14.5. It cited the stock’s explosive run as the reasoning for the downgrade.

Disney, Amazon and Comcast won the 11 year NBA TV rights contract. Warner Brothers is suing the league for turning down its supposedly competitive offer. For Amazon specifically, this will simply mean another valuable tool in its tool kit to drive pricing power and retention for its world-class Prime subscription.

Amazon is expanding into Japan for drug delivery, partnered with GE Healthcare for “AI medical solutions” and will (according to Bank of America) beat profit estimates this quarter.

Walmart might invest $200 million in self-driving forklifts.

UPS reported ugly earnings this past week with eroding pricing power and a weak profit estimate. This was related to exploding Chinese export demand from players like Temu or Shein overwhelming its infrastructure and forcing a pivot to more expensive fulfillment.

Buffett sold some Bank of America for the first time in years as the firm announced a $25 billion buyback.

Apple cut iPhone prices in India in response to lower import taxes.